By Soma Biswas and Alexander Gladstone
Auto-parts manufacturer Garrett Motion Inc. is preparing for a possible bankruptcy filing as tensions rise with former parent Honeywell International Inc. over asbestos injury payments and as sales have slumped during the Covid-19 pandemic, according to people familiar with the matter.
The company is in discussions with creditors and considering filing for bankruptcy within weeks, though talks are fluid and no decision has been reached, the people familiar with the matter said.
Lenders have engaged law firm Gibson Dunn & Crutcher LLP and financial adviser PJT Partners Inc., while bondholders have hired the law firm Ropes & Gray LLP as they begin to negotiate with the company, according to the people.
Garrett Motion is working with law firm Sullivan & Cromwell LLP and financial advisers Perella Weinberg Partners LP and AlixPartners LLP, the people said.
A spokesman for Garrett Motion declined to comment.
The company in August said it hired legal and financial advisers to explore options to address a $1.4 billion debt load and required payouts to victims of asbestos exposure stemming from Honeywell's products. Garrett Motion also warned that efforts to reduce debt could hurt the value of its shares or lead to a cancellation of its stock.
The company's financial woes stem in part from its 2018 spinoff from Honeywell, which laid out how the two companies would cover injury claims to workers and others injured by asbestos in Honeywell products.
In December, Garrett Motion sued Honeywell in New York state court, seeking to unwind an agreement to reimburse Honeywell for the bulk of the former parent's settlement payments.
In the lawsuit, Garrett Motion said the indemnification agreement is oppressive and one-sided, turning the company into Honeywell's "asbestos piggybank." Honeywell has said the lawsuit has no merit and the indemnification agreement is enforceable, according to public filings.
Honeywell also has argued the indemnification deal was structured and sized to enable Garrett to generate enough cash flow to make the payments, which were capped annually. Honeywell declined to comment on a possible bankruptcy filing by Garrett Motion.
Garrett Motion paid $25 million to Honeywell earlier this year to cover asbestos claims under the indemnification agreement, according to securities filings. Honeywell agreed to defer further reimbursement payments until June 30, 2022, under certain conditions.
The reimbursement agreement concerned asbestos liabilities tied to Honeywell's Bendix subsidiary, an aerospace and automotive unit that made brakes containing asbestos.
Covid-19 also has pressured Garrett Motion's business along with other auto suppliers throughout the U.S. as car companies have slowed down production, laid off workers and burned through cash.
Rolle, Switzerland-based Garrett Motion's plants are bracing for the steepest drop in demand for automotive products since the 2008 financial crisis, the company said in its latest quarterly report. While the company reopened factories in China in the second quarter, the pandemic has forced it to close or reduce production in other parts of the world.
The company's net sales fell 40% in the quarter ended June 30 compared with the same period last year, to $477 million.
Garrett Motion's lenders agreed to suspend until 2022 certain requirements for the company to hit specific earnings targets.
The company's shares tumbled from over $10 in January to just over $3 on Wednesday. The shares fell further Thursday, to $2.41, down 20% on the day.
Write to Soma Biswas at firstname.lastname@example.org and Alexander Gladstone at email@example.com